Friday, December 10, 2010

Market Musings: 12.10.10

A lot of tidbits today.

Rush To Judgment

In a what has become reminiscent of how Congress and the media deal with recent crises, the debate over the extension of the Bush era tax credits has been boiled down to the usual if we don't do something right now the world is going to fall apart scenario.  I don't have an informed opinion either way, but what I do hear is how if the tax cuts aren't extended the risk of a double dip recession is all but assured.  Why do we "buy" this line of thinking when the track record of our current economic leaders is so poor?  Once again, it is this rush to judgment that we must do something -like the Iraqi war and like the financial crisis of 2008 - that is so dysfunctional and troubling.

Getting The Most Mileage Out of an Announcement

We all know that the current market is floating on a massive pool of liquidity, and at times, the only reason for the market to go up is another bail out or stimulus program.  Certainly, the announcement or expectation of more liquidity is just as good as the program itself, and in many ways, our financial officials understand this.  We already know that there is nothing coming out of Washington that will be said that would derail not just the economy but the stock market, which is continually viewed as a proxy for the economy.  The question is always how to get the most mileage out of each announcement to stimulate the economy or bailout.  So here is the new dynamic, and let's call this a "two -fer" because each act to stimulate the economy will cause the market to go into hyperdrive at least two times.  

So take the Bush tax cuts.  You have the original announcement that there is a compromise.  Bingo!  The market pops.  Then over the next couple of days there is the discussion that may compromise the deal.  In this instance, it is Nancy Pelosi and crew threatening to stall the process.  The initial enthusiasm wanes, but a last minute compromise resuscitates the deal, and we can all breathe a sigh of relief as the market "roars" higher with approval.  It is all a show as there is no political will in Washington to make the tough choices and go against the consensus. 

Market Intervention

Government intervention into the markets and everyday life for that matter is becoming the accepted norm.  I happened to see an interview the other day with Neil Cavuto and one of the Commissioners of the Commodity Futures Trading Commission, Bart Chilton.  The discussion focused on regulation of speculators and small investors in the commodity markets so that no one individual could "corner" the market.  Having government regulate and oversee an orderly market seems reasonable, but Chilton was talking about intervening in the markets to protect investors from themselves and to protect consumers.  In particular, Chilton and Cavuto discussed the 2008 spike in oil to $150 a barrel.  Chilton was blaming speculators (not government policies) and noted that $150 oil was not good for consumers.  Therefore, the government must intervene.

The market intervention rhetoric is the norm these days, and it is so much so that Cavuto didn't even question Chilton about it.  That in and of itself is surreal.  But the other more insidious issue here is Chilton's assertion that the government is intervening because the government is benevolent and knows better than the markets.  How else can you protect speculators from themselves and in the process, protect the consumer?  My answer, stay out in the first place.  Enough said!


Denali92 said...

There is definitely overt market manipulation - should we be surprised??? (Bernanke's Op Ed was the most stunning of all!)

The difficult thing for rational people that use time tested indicators is to put those aside and trade the manipulation and the asymmetry of the markets - I wish I could do it! I have tried, but the rational arguments - we should fill the gaps, there is no volume... always win out....

There have been 5 times since early September that the market has closed and I have said to myself tomorrow is the day to buy opening weakness - did we ever get that weakness? Sadly, NO! as we just GAP and Go! Like on 1-Dec, 18-Nov, 2-Nov, 20-Oct, 24-Sep....

The small and midcaps have been the real offenders... while the Dow and SPX trade relatively reasonably!

While I would love to embrace the irrationality.... like you - I just can not do it!



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